The withholding gap every payroll team needs to understand
The 0.9% Additional Medicare Tax (AMT) is one of those payroll obligations that looks straightforward until you run payroll for someone earning well above $200,000 who files a joint return with a high-earning spouse. The employer’s withholding duty is keyed to a $200,000 per-employee threshold. The employee’s actual liability is keyed to a different threshold based on filing status. Those two numbers don’t always point in the same direction, and the difference lands on the employee’s tax return—sometimes as a surprise balance due, sometimes as a refund, and occasionally as a penalty for under-payment.
Managing that gap is the real compliance challenge. Here’s what payroll needs to know for the 2026 tax year.
What the Additional Medicare Tax is and where it comes from
The Affordable Care Act (ACA) created the Additional Medicare Tax in 2013. A 0.9% Additional Medicare Tax applies to Medicare wages, self-employment income, and railroad retirement (RRTA) compensation that exceed threshold amounts based on filing status, and it is used to help fund the Affordable Care Act tax provisions, including the premium tax credit.
The rate itself hasn’t changed since inception. For the 2026 tax year, the Additional Medicare Tax rate remains at 0.9%. It stacks on top of the standard 1.45% Medicare tax that both employee and employer pay, bringing the total Medicare rate to 2.35% on wages above the applicable threshold. Unlike Social Security, there is no wage base limit for Medicare tax; the standard rate of 1.45% applies to all covered wages no matter how high the earnings.
For context on the broader FICA picture: for 2026, the Social Security taxable wage base is $184,500, up from $176,100 in 2025. The Social Security tax rate for employees remains 6.2% on wages up to $184,500, and employers match that rate. The AMT sits entirely outside that wage base structure.
The two thresholds: employer withholding vs. employee liability
This is the source of nearly every AMT compliance problem. The rules draw a sharp line between the threshold that triggers employer withholding and the thresholds that determine what an employee actually owes.
Employer withholding threshold
In addition to withholding Medicare tax at 1.45%, employers must withhold a 0.9% Additional Medicare Tax from wages paid to an employee in excess of $200,000 in a calendar year, beginning in the pay period in which wages exceed $200,000 and continuing through the end of the calendar year. This requirement applies regardless of the employee’s filing status and regardless of wages or compensation paid by another employer.
Employee liability thresholds
The thresholds that determine actual AMT liability differ by filing status, per IRS guidance:
- Married filing jointly: $250,000
- Single, head of household, or qualifying surviving spouse: $200,000
- Married filing separately: $125,000
These income thresholds are not indexed or increased annually for inflation. They’ve been fixed since 2013 and will remain so unless Congress acts.
Why the gap matters in practice
Consider a married employee filing jointly whose wages from a single employer reach $220,000. The employer begins withholding AMT on the $20,000 above $200,000. But the employee’s liability threshold is $250,000. If the employee’s spouse earns nothing, the employee owes no AMT at all and will receive a refund of what was withheld. Conversely, if both spouses each earn $160,000 at separate employers, neither employer withholds AMT (neither crosses $200,000), but the couple’s combined wages of $320,000 exceed the $250,000 joint threshold by $70,000, generating a $630 AMT liability that will hit at filing. Married couples filing jointly may exceed the income threshold when combining their incomes, even if neither spouse individually earns more than $200,000.
No employer match—and no stopping withholding mid-year
The Additional Medicare Tax is only imposed on the employee. There is no employer share. This matters for cost modeling: adding a high-earning employee past $200,000 in wages doesn’t increase the employer’s FICA cost the way crossing the Social Security wage base affects employer contributions.
Once the $200,000 threshold is crossed, withholding is mandatory for the rest of the year. Employees cannot ask their employer to stop Additional Medicare Tax withholding if it is required. If the employee knows they won’t owe AMT (for example, a single filer expecting total income well below $200,000 across all sources), the remedy is to reconcile on Form 8959 and claim a credit against the total tax shown on their return.
Multiple employers and the under-withholding problem
The $200,000 withholding threshold applies per employer, not in aggregate across all employers. The $200,000 withholding threshold applies to each single employer. This means an employee who earns $150,000 at one job and $120,000 at a second job will have AMT withheld by neither employer, but owes AMT on the $20,000 by which combined wages exceed $250,000 (assuming married filing jointly) or on the full $70,000 excess above $200,000 if filing single.
If an individual has multiple jobs and none of their employers individually pays more than $200,000, but their combined income exceeds the threshold, they may not have enough Additional Medicare Tax withheld. Payroll can’t solve this problem for employees with multiple employers, but you can make affected employees aware of it so they can take corrective steps before April.
What employees can do to cover anticipated liability
Employees can’t request withholding labeled specifically as Additional Medicare Tax. Employees can’t request additional withholding specifically for Additional Medicare Tax. The workarounds are:
- Revised Form W-4. If an employee anticipates a liability for Additional Medicare Tax for 2026, they may request that the employer withhold an additional amount of income tax by filing a new Form W-4, Employee’s Withholding Certificate, with the employer. The additional income tax withholding will be applied against the taxes shown on their tax return, including any Additional Medicare Tax liability.
- Estimated tax payments. To the extent Additional Medicare Tax isn’t withheld by the employer, the employee must pay the tax, and if they anticipate owing it but won’t satisfy the liability through withholding, they may need to make estimated tax payments. Employees should refer to IRS Publication 505, Tax Withholding and Estimated Tax, for calculation guidance.
Employer error correction: same-year and prior-year
If you discover that you’ve under-withheld AMT from a current-year paycheck, act before December 31. If an employer under-withholds the Additional Medicare Tax from wages it pays to an employee and discovers the error in the same year it pays the wages, the employer may correct the error by making an interest-free adjustment on the appropriate corrected form—such as Form 941-X—and should deduct the correct amount from other wages paid to the employee on or before the last day of the calendar year.
If the employer over-withholds, the employer should repay or reimburse the amount to the employee prior to the end of the year and make an interest-free adjustment on the appropriate corrected form, such as Form 941-X.
The stakes for failing to withhold are real. If an employer fails to withhold the correct amount from wages it pays to an employee, the employer may be liable for the amount not withheld and subject to applicable penalties. The IRS will not collect the under-withheld Additional Medicare Tax amount from the employer if the employee subsequently pays it, but the employer would still be subject to any applicable penalties or additional tax due for failure to withhold as required.
Form 8959 and Form W-2: the reporting mechanics
Employees calculate Additional Medicare Tax liability on their individual income tax returns using Form 8959, Additional Medicare Tax, report any Additional Medicare Tax withheld by their employers on those returns, and any AMT withheld by an employer is applied against all taxes shown on the individual’s return, including any Additional Medicare Tax liability.
From a payroll reporting perspective, the AMT withheld is included in Box 6 of Form W-2 (Medicare tax withheld) alongside the regular 1.45% Medicare withholding. There is no separate W-2 box for AMT. Even if the employer withheld the 0.9% Additional Medicare Tax from wages or compensation above the $200,000 withholding threshold, the employee must file Form 8959 to ensure they are reporting and paying the correct amount.
Employees who owe AMT that wasn’t fully covered by withholding should also be aware of the estimated tax penalty. Employees may be subject to a penalty for failure to make estimated tax payments if they owe Additional Medicare Tax and wait to pay it with their tax return. The penalty is calculated on Form 2210.
Tips, fringe benefits, and self-employment income
AMT isn’t limited to regular wages. To the extent that tips and other wages exceed $200,000, an employer applies the same withholding rules for Additional Medicare Tax as it does for regular Medicare tax, and withholds AMT on the employee’s reported tips from wages paid to the employee.
Imputed income from group-term life insurance in excess of $50,000 is also in scope. Per IRS guidance, when that imputed income, combined with other wages, exceeds $200,000, it is subject to AMT withholding. Employers providing non-cash fringe benefits to higher-earning employees should verify their payroll systems are capturing this correctly.
For employees who also have self-employment income, the IRS combines Medicare wages and self-employment income to test against the filing-status threshold. If an employee receives both Medicare wages and self-employment income, the Additional Medicare Tax is calculated by first computing tax on Medicare wages in excess of the applicable threshold, then reducing that threshold by the total Medicare wages received (but not below zero), and finally computing AMT on self-employment income in excess of the reduced threshold.
Compliance checklist
- Configure your payroll system to trigger the additional 0.9% withholding automatically once cumulative wages per employee reach $200,000 in the calendar year.
- Verify the trigger applies per employee, not per pay period or across multiple EINs unless a common paymaster arrangement exists.
- At year-end, confirm Box 6 of each high-earner’s Form W-2 reflects the combined 1.45% regular Medicare tax and any AMT withheld.
- For employees who cross or approach $200,000 and are likely to have a filing-status mismatch (e.g., joint filers whose combined household wages will exceed $250,000), consider proactively informing them about the Form W-4 adjustment and estimated tax options—particularly if your organization has a payroll advisory function.
- Monitor mid-year for any under-withholding discovered before December 31 and correct via an adjusted pay period and Form 941-X, not by waiting until year-end filing.
- Include AMT considerations when reviewing imputed income calculations for group-term life insurance and other taxable fringe benefits issued to high earners.
FAQ
Does the employer have to match the 0.9% Additional Medicare Tax?
No. The Additional Medicare Tax is only imposed on the employee; there is no employer share. This distinguishes it from regular Medicare tax, which is split equally between employee and employer at 1.45% each.
What if an employee has two jobs and neither employer crosses the $200,000 threshold?
Each employer withholds independently based only on wages it pays. An employer must withhold Additional Medicare Tax on wages it pays in excess of $200,000 for the calendar year, regardless of wages or compensation paid by another employer. If no single employer crosses $200,000, neither withholds AMT, but the employee may still owe it based on their total combined income and filing status. The employee’s remedy is to submit a revised Form W-4 to one or both employers requesting additional income tax withholding, or to make estimated tax payments.
Where does the AMT withheld appear on Form W-2?
AMT withholding is included in Box 6, Medicare tax withheld, alongside the standard 1.45% Medicare tax. There is no separate box designated for it. Employees calculate their final Additional Medicare Tax liability on Form 8959 and attach it to their Form 1040. Any over-withholding becomes a credit against total tax; any under-withholding results in an additional balance due.
Can an employee ask the employer to stop the AMT withholding if they know they won’t owe it?
No. Employees cannot ask their employer to stop Additional Medicare Tax withholding if the employer is required to withhold it. If the employer withheld AMT and the employee will not meet the threshold based on filing status, the amount withheld may be refundable. The employee files Form 8959 to document the withholding and receive any refund of tax withheld in excess of the total tax owed.
Working with Optimus Payroll
High-earner withholding is one of those areas where a misconfigured threshold or a missed mid-year correction can result in both employee complaints and employer penalty exposure. Optimus Payroll’s managed payroll services include threshold monitoring, year-end reconciliation support, and payroll tax accuracy reviews designed to catch AMT gaps before they reach Form 941-X territory. If your team is carrying this compliance burden in-house, contact Optimus Payroll to discuss how managed services can reduce that risk.
Disclaimer: This article is general informational content only and does not constitute legal, tax, or accounting advice. Payroll law changes frequently and rules vary by state and locality. The figures and rules cited reflect IRS guidance as of the 2026 tax year, but you should confirm current thresholds, rates, and requirements directly with the IRS, the Department of Labor, your applicable state agency, or a qualified attorney, CPA, or payroll professional before taking any compliance action.